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GTAP Resource #1320

"Trade Liberalisation and Poverty: The Empirical Evidence"
by Winters, Alan, Neil McCulloch and Andrew McKay

The paper is explicitly empirical in focus. We report theoretical work if it informs empirical studies, but our emphasis is primarily on the study of ex post data pertaining to actual instances of trade liberalisation and related shocks. We also review a little of the Computable General Equilibrium (CGE) modelling literature, which, while fundamentally theoretical, does at least rely on some data.

The paper starts with a very brief account of our analytical framework, which provides the organisational framework for the paper. We then survey the evidence on trade liberalisation and poverty under four headings: macro-economic aspects (growth and fluctuations), households and markets, wages and employment and government revenue and spending. While for each component trade liberalisation can facilitate poverty alleviation, in none of them can an unambiguous generalisation be made either in theory or empirically.
The ambiguity arises because there are so many reasons why people are poor; and even within broadly defined groups there are huge differences in the circumstances of individual households. The conclusions of much of the work surveyed below are conditional on these circumstances, so a crucial part of any specific analysis must be to identify the different characteristics of the poor including information about their consumption, production and employment activities. Given the variety of circumstances, it will hardly be surprising that there are no general comparative static results about whether trade liberalisation will increase or reduce poverty. Simple statements about ‘the poor’ will, at best, lose information and simple generalisations about all countries will just be wrong.

An important aspect of any analysis of poverty is the definition and measurement of poverty itself. Poverty is a complex and multi-dimensional phenomenon and there is considerable controversy in the literature about how it should be defined and measured.3 However, the vast majority of the empirical economic literature on poverty adopts an absolute income or consumption metric.

Therefore, while recognising that there are many legitimate approaches to the measurement of poverty, the evidence that we review focuses on this approach. Moreover, a sensible first step towards understanding the effects of trade on poverty and communicating them clearly is to focus on the simplest and most directly observable measures of welfare. Much of the methodological discussion would generalise to other dimensions of poverty if the later could be measured precisely. Finally, it is worth emphasising that our concern is with poverty, not inequality. Since trade liberalisation tends to increase the opportunities for economic activity, it can very easily increase income inequality while at the same time reducing poverty. Consequently, statements about its effects on inequality cannot be translated directly into statements about its impact on absolute poverty. There may be sound positive and normative reasons for interest in inequality, but they are not the concerns of this paper.

Resource Details (Export Citation) GTAP Keywords
Category: 2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Created: Bacou, M. (5/29/2003)
Updated: Bacou, M. (7/1/2003)
Visits: 2,501
- Economic analysis of poverty

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